Pub. 13 2018-2019 Issue 3

WWW.NEBANKERS.ORG 26 HSAS – AN INVESTMENT TOOL BEYOND HEALTHCARE T O NO ONE’S SURPRISE, HEALTH SAVINGS ACCOUNTS (HSAS) continued to experience major growth throughout 2017. According to Devenir, there were over 22 million HSAs open at the end of 2017, an increase of 1.2 million from the end of 2016. HSAs also held assets worth roughly $45.2 billion, an increase of 22 percent over year-end 2016. These numbers continue a trend that the market has seen for many years, but what are some of the transitional factors behind this sustained growth? Key Growth Factors When looking at last year’s strong asset growth, 2017 was affected by three key factors. 1. Invested Amounts – Credit needs to be given where it is due. At the end of 2016, the DowJones Industrial Average closed at 19,975. On December 31, 2017, that same index closed at 24,719. This 25 percent market gain accounts for only part of the growth as invested assets grew by 53 percent year over year. HSA owners who were already invested in the market realized strong growth based on the market’s success. They had already made the transi- tion from spender, to saver, to investor, and reaped the benefits. The increased asset size also illustrates that a number of new HSA owners made the transition into long-term investing. 2. Carry-Forward Balances – Devenir’s research shows that for the fourth year in a row, contributions exceeded distributions by more than $5 billion. This continual carry-forward balance is a key driver in asset growth, but more importantly, it illustrates that a significant percentage of HSA owners are building HSA balances versus spending or, at times, being forced to spend their flexible savings account balances. 3. Payroll Deduction – According to Devenir, the percent - age of employee contributions made through payroll deduction increased from46 percent of the total in 2016 to 63 percent in 2017. In addition, the average contribu - tion increased from $1,786 to $1,921. The last factor is helping to create a macro shift in long-term savings through the use of payroll deduction. Planning for the Future Thinking beyond immediate health expenses, a greater number of consumers are looking at HSAs as vehicles for their future health care needs. According to a report released by Con- nectYourCare, this trend increased from 40.5 percent in early 2017 to 44.9 percent in early 2018. Time and experience are shifting how individuals look at HSAs. They continue to evolve along the model of spender, to saver, to investor. But individuals are further evolving by looking at HSAs as a key supplement to future health care expenses in retirement. Remember, estimated health care spending during retirement ranges from $250,000 to $400,000 (depending on which article you read). When saving for retirement, an historically accepted principle has been to contribute (or work up to contributing) theminimum amount necessary to obtain full employer matching dollars in a retirement plan. Hence the phrase “it’s free money”. But as consumers begin incurring major health care expenses, they’ll start connecting the dots between these unexpected expenses and their overall retirement needs. They’ll quickly realize that their need for more substantial retirement savings is critical. They’ll also start thinking of where to place their payroll defer- rals, which could create a possible competition between retire- ment plan deferrals and HSA deferrals. “Where should I invest my money?” is a question that more employees will be asking of their employers and of their advisors. Consumer Habits A study conducted by Alegeus outlined that what consumers believe and what they do can be vastly different when it comes to understanding how to cover expenses for current and future healthcare needs. According to Alegeus’ research, 51 percent of the respondents fear unexpected healthcare expenses near- term. In addition, 68 percent believe themselves to be in the saver category (described earlier) where they focus on carrying forward HSA assets year after year. The reality is that only 23 percent of consumers save anything beyond the current year and more than 50 percent underfund their healthcare savings. What Carrie Horn, Ascensus